HOW BLOCK CHAIN CAN IMPACT

FINANCIAL SERVICES – THE

OVERVIEW, CHALLENGES AND
RECOMMENDATIONS

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Highlights

a. We investigate Block-Chain adoption cases in financial services.

b. We summarize current status of Block-Chain practices.

c. We use interviews to investigate Block-Chain adoption.

d. We identify knowledge-hiding as a main barrier for financial industry.

e. We make several recommendations and four propositions.

Keywords: Block-chain, Financial Industry, Ethics, Ethical Challenges, Block-chain

adoption, Recommendation for Block-Chain adoption.

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 ABSTRACT

Fin-Tech (Financial Technology) and Block-Chain are prevalent topics among

technology leaders in finance today. This article describes the impact and
revolution of Fin-Tech and Block-Chain in the financial industry and
demonstrates the main characteristics of such technology. Then we present three
critical challenges as well as three ethical issues about using Bloch-Chain
technology. Next, we discuss the development of Block-Chain for the financial
sector. In addition, we describe the real motivations for banks to explore Block-
Chain, and problems they face. In order to have a good understanding of the
industry, a qualitative method was adopted, and sixteen experts were
interviewed. It was identified that knowledge hiding in Block-Chain was
common and the rationale behind was analyzed using the TPB (Theory of
planned Behavior) approach. The analysis results suggested that knowledge
hiding was due to affective, behavioral and cognitive evaluations. The
interviewees also provided several recommendations and success factors to
overcome current issues in Block-Chain adoption. Therefore, four important
propositions have been developed. Finally, this article suggests how financial
services should respond to this new technology and how to manage knowledge
sharing in a more structured way. This article contributes to the literature related
to the current entrepreneurial finance landscape for Block-Chain.

Keywords: Block-Chain, Financial Industry, Ethics, Ethical Challenges, Block-

Chain adoption, Recommendation for Block-Chain adoption.

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1. INTROCUCTION
The key element of the business is trading, and trading activities are dependent on
trust (Tang, 2018). Through financial instruments and strategies, trust can lead to
successful businesses. A trust-rating platform is one important part of finance system
and it is used to evaluate whether a user can be trusted. It rates a user based on his or
her borrowing and repayment history, credit status, and other information to
determine whether to approve the loan or credit limit or discount, etc. For Example,
Alibaba proposes e-commerce platforms, Alipay and its trust-rating platform.
Depending on the trusting scores, customers cam get discounts, order goods/services
and payback (Dong et al., 2015).

Financial technology, also called Fin-Tech, is the “marriage” between technology and
finance. When combining both technology and finance, they have a “chemical
reaction” and create a multiplayer effect, which is more substantial than the sum of
the two together. Zetzsche et al. (2017) point out that the current Fin-Tech stands out
from two significant trends. The first trend is the pace of change driven by Big Data,
machine learning, commoditization of technology and Artificial Intelligence(AI). The
second trend is the fact that more new non-financial firms have entered and invested
in financial services businesses. Fin-Tech is a key area in the development of Industry
4.0, since it requires the use and integration of different technologies, such as AI and
Data Science, and it also provides a platform as a service and software as a service for
Industry 4.0 (Dhanabalan, and Sathish, 2018; Mashelkar, 2018).

Fin-Tech can also be understood in two ways, as follows (Tang,2018). The first
dimension is about traditional financial enterprise conducting transformation by using
technology. For example, traditional financial enterprises, such as Pingan Group,
Industrial and Commercial Bank of China, Morgan Stanley and Goldman Sachs, use
big data and other new technologies to upgrade and transform their service. The
second dimension is that some technology enterprises try to take advantage of their
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technologies to develop financial services. For Example, the initial aim of Facebook,
Apple, Google, Ant Financial (China), Jingdong Finance (China), Tencent (China),
was not to involve in the financial transaction. But finally, they decided to develop
their own versions of financial services to cover their customer’s needs and create
new forms of entrepreneurial financial landscape.

Fin-Tech has impacted the traditional financial industry. After the Credit Crisis of
2008, the landscape of the financial sector has changed due to overall financial
regulation and financial technology innovation (Anagnostopoulos, 2018; Brem at al.,
2017). Fin-Tech has three primary breakthrough directions. The first one is mobile
payment, such as We-Chat , Ali-Pay, and Apple-Pay. The second is based on “smart
contract”, including Chinese brands such as “Ant Xiaodai”, “Jingdong Baitiao”, and
”Huabai). P2P lending is also considered as part of the smart contract category. The
third one, which is particularly popular, is called the Block-Chain. The main
characteristics of these three major topics of the Fin-Tech industry are instant
contract, live data, credit ratings and updates.

The reason why the financial industry is fascinated by Block-Chain technology is that
the characteristics of the Block-Chain allow people to build trust faster and have the
potential to change the financial infrastructure.
However, the development of Block-Chain is not mature yet. Some challenges have
arisen, such as a scalability, security, privacy, latency, etc. It is important for financial
markets to have a better understanding of the Block-Chain industry and find robust
solutions. Therefore, this paper can demonstrate an overview of the Block-Chain and
its development in the financial industry and investigate challenges for their
development of Industry 4.0. During the overview, critical challenges, as well as
ethical issues about using Block-Chain technology, were identified as well. After the
overview, a qualitative method base on sixteen interviews with experts in the Block-
Chain industry was conducted in order to have a good understanding of the industry.
Information from experts was analyzed by the methods of the Theory of Planned

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 Behavior. Based important propositions were developed.

2. BLOCKCHAIN
a. Background
Block-Chain has become popular due to the rise of bitcoin. However, this
technology is not limited to the financial area. A Block-Chain originally
means blocks of cryptocurrencies linked by chains. This new concept has
received significant attention in Fin-Tech. Each block, bound by by
cryptography, contains a cryptographic hash of the previous block, a
timestamp, and transaction data. The first Block-Chain was conceptualized by
Satoshi Nakamoto in 2008, who used a hash Cash – like method to add blocks
to the chain without a trusted third party. Block-Chain, a rapidly evolving
financial technology, revolutionizes the way people are dealing with
businesses.

Block-Chain attracts attention as an underlying technology for bitcoin and

other crypto-currencies, since it is seen as a new foundation for transactions in
the world. A Block-Chain is a continuous account database, which is
complete, distributed and unalterable. The most excellent value of Block-
Chain is a decentralized system; whose security chain is very long. The
essential advancement is the distributed trust offered by Block-Chain
technology -
1. Removing the trusted third party to facilitate transactions;
2. Decreasing the cost of trading;
3. Reducing the time.
Thus, Block-Chain is expected to set off the industrial and commercial
revolution and promote economic reform worldwide. Fig. 1 shows a view of
how Block-Chain supports the transactions between the two parties. Firstly,
Block-Chain uses encryption to produce a digital security code. Then the users
can validate the transactions without private information. Because the record

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 in the Block-Chain is immutable, the transaction will be completed
automatedly and distributed. Tapscott and tapscott (2017) point out the five
main principles of the Blockchain:
1. Computational Logic;
2. Peer – to – Peer Transmission;
3. Irreversibility of Records;
4. Distributed Database;
5. Transparency with Pseudonym.
Another approach is to use a conceptual framework to integrate important
components together. For example, Pazatis et al. (2017) use a Back-Feed
concept to illustrate how to integrate production, record and actualization of
value together that can match both industrial and information economy.

b. Key characteristics of Block-Chain

Block-Chain has the four main characteristics as follows.

Decentralization: Zheng et al. (2018) state that in a traditional centralized

transaction system, each transaction needs to verified by a central trusted agent
(such as the central bank). Each party on the Block-Chain can access to the

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database and check the history of the transaction without the third party
(Tapscott and Tapscott, 2017). The main advantage of this chain is its
replication over a distributed network. Therefore, if a criminal or abusive
government organization plans to remain undetected, they have to
simultaneously change all copies of the Blockchain. Besides, distributed
ledgers record transactions automatically and in real-time, reducing the
opportunity for fraud (rRennock et al., 2018). Decentralized infrastructures,
with its limited boundary conditions, can be proeffective in managing Block-
Chain and its related activities (Pereira et al., 2019).

Users’ Anonymity: Transactions occur between Block-Chain addresses. Each

user on a Block-Chain has a unique alphanumeric address, and they can decide
to keep it secret or open to others (Tapscott and Tapscott, 2017). Users can use
the generated address to interact the Block-Chain network, and there is no
longer any central party to store users’ private information (Zheng et al.,
2018). This mechanism preserves some privacy. However, due to inherent
constraints, Block-Chain cannot guarantee perfect privacy protection.

Consensus Mechanism: As there is no central trusted agent in the whole

network, a consensus mechanism is introduced into the network. Its purpose is
to achieve a unified agreement on the validation of every record. It is possible
to forge a non-existent record by managing to control more than 51% of the
accounting nodes in the entire network. Hence, any distortion is easy to detect
(Huang, et al., 2019).
Execution: Users can make use of algorithms and rule to trigger transactions
between nodes (Tapscott and Tapscott, 2017). Block-Chain can also execute
programs if certain conditions are met. This can be reffered to as a smart
contract. A managing director of a Block-Chain firm, says, “It is not merely
one or two characteristics of Block-Chain that render this technology creative
and attract individual’s attentiom. The integration of property of Block-Chain,

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 such as decentralization, anonymity, immutability, makes this new technology
valuable.”
c. Development

Block-Chain technology has gone through three generations of technological

development: Block 1.0, 2.0 and 3.0. Block 1.0 is a currency, and its
successful project is bitcoin. Block 2.0 not only includes cash transactions but
also covers mortgages, bonds, loans, futures and smart science, health, culture,
art, and literacy (Swam, 2015).

According to Feng et al. (2018), there are three levels for Block-Chain: P2P
network, databases and its applications. As shown in Fig.2, the Global Ledger
level contains blocks connected. Each block includes the transactions and
smart contracts and then linked to its related one. At the application level,
different services can query, analyze and interpret the meanings for each block
of transactions, smart contracts and financial updates.

d. Challenges associated with Block-Chain

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 Block-Chain has great potential but must face numerous challenges, which
potentially stop the wide usage of Block-Chain. The Block-Chain is a
distributed peer-to-peer

Blockchain has great potential but must face numerous challenges,

which potentially stop the wide usage of Blockchain. The Blockchain is
a distributed peer-to-peer system that everyone in the network can
read the transaction records and add new data to the database. The
openness and the absence of central coordination are the foundation
of the system, which has negative impacts and limits the use of
Blockchain (Drescher, 2017). In this section, we also interviewed two
experts on Blockchain who could address interesting challenges in
this area. Interviewee A is a professor of Computer Science and
Interviewee B is a specialist in Blockchain.

Some issues can be raised, such as scalability, security, privacy,

latency and financial markets still struggle to find robust solutions
(Underwood, 2016).

2.4.1. Scalability

The Blockchain becomes voluminous with the increasing number of

transactions (Zheng et al., 2018). Marr (2018) mentioned that
Blockchain transaction takes some time to implement due to their
complexity, encrypted and distributed nature.

Ethereum is a well-known computing platform, which is open-source,

public, Blockchain-based, and Ether is also generated by the Ethereum
platform (Biais et al., 2019). According to Chen et al. (2018), more
than one million smart contracts are running on Ethereum. Currently,
thousands of entrepreneurs and developers are creating new projects
and startups based on the Etherlane platform.

Jackson (2018) reports that while Visa manages 24,000 transactions

per second, PayPal manages 193 transactions per second, when
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Ethereum and Bitcoin can only handle 20 transactions per second. It
means that the requirement of processing millions of transactions in a
short time cannot be satisfied. The reason is due to the limited
capacity of blocks, which often delay some small transactions as
miners instead of preferring transactions with relatively high fees
(Biais et al., 2019).

2.4.2. Security

According to Werbach (2018), Blockchain-based systems are

vulnerable. Since 2009, the bitcoin and Ethernet platforms with
Blockchain as the underlying technology have been stolen
successively, with a loss of nearly 600 million
yuan. Zheng et al. (2018) state that Blockchain is susceptible to attacks
of collusive self-centered miners and many other attacks have shown
that Blockchain is not so secure. Price (2018) claimed that all public
Blockchain are vulnerable to 51 percent attacks or 34 percent attacks
because of the design of Blockchain technology. A 51 percent attack
occurs when hackers are the major source of a Blockchain's
computing power. Thus, they are the majority in the network and
control the entire Blockchain.

Mt. Gox, the earliest and largest bitcoin trading platform in the world,
announced on February 28th, 2014 that 850,000 bitcoins, including
users' trading accounts and the company's own accounts, have been
stolen, resulting in a loss of 467 million US dollars. On June 8th, 2016,
hackers stole 3.6 million dollars from the Dao, the world's largest
crowdfunding platform, causing a loss of 75 million US dollars.
Similarly, on August 2nd, 2016, 120,000 bitcoins were stolen from
Bitfinex, the bitcoin exchange, resulting in a loss of $60 million
(Blockchain Finance, p229, 2016). Finally, a Japanese exchange noted
a theft of half a billion dollars of cryptocurrency in 2018
(Werbach, 2018)

Although Blockchain technology has shown irreplaceable

practicability and uniqueness in the capital market, its immature
technology status is still a challenge to regulators (Cong and
He, 2019). This is also the supported reflected by an interviewee.
Interviewee B said, "Smart contract of Blockchain is different from a
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paper contract. Smart contracts use a computer language with
conditions. As long as these conditions are met, it will automatically
trigger the execution. For the time being, traditional paper contracts
are more stable and safe.”

2.4.3. Privacy Leakage

The Blockchain can produce many addresses instead of real identity

for users to avoid information leakage, which is believed to be quite
safe for users. However, the Blockchain cannot prevent transactional
information leakage because all information on transactions and
balances are shown to the public (Meiklejohn et al., 2013; Kosba et al.,
2016). Many examples are reflecting these phenomena, such
as Barcelo (2014), demonstrating that his Bitcoin transaction can
reflect the user's profiles.

The problem of privacy leakage is quite huge, which involves users’

information security. Although multiple methods have been proposed
to improve the anonymity of Blockchain, the problem still has not
been solved well (Cong and He, 2019).

2.4.4. Energy Consumption

The execution and storage costs of big data programs can be higher
than the long-term storage costs of electronic money transfers and
transaction data (Staples et al., 2017). Price (2018) claimed that the
computing power needed to run Blockchain is rapidly growing. The
bitcoin system consumes an enormous level of electricity. Indeed, the
amount of electricity required by a single bitcoin transaction needs
terawatt-hour. The statistics of bitcoin energy consumption in
different countries and the comparison between bitcoin and VISA are
listed in Fig. 3 .

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However, for this problem, Interviewee B says: “It depends on which Blockchain consensus
mechanism you choose. If you choose the mining mechanism, it will consume more
electricity. If you want the POS equity mechanism, it will not consume electricity”.

2.5. Ethical issues for Blockchain

2.5.1. Privacy

Blockchain technology can create permanent and immutable records for participants, but it
also increases the privacy risks of some entities (Till et al., 2017). Meanwhile, confidentiality
is challenging to build in public Blockchain-based systems, as information is visible to all
participants in the network by default (Staples et al., 2017).

Transparency is needed for clarifying ownership and preventing double-spending, while users
require privacy (Drescher, 2017). Feng et al. (2018) described that Blockchain transactions
contain participants' addresses, transaction values, timestamps, and sender signatures, which
makes it possible to trace transaction flows to extract user information through data mining.

2.5.2. Regulations and law

With the growing usage of Blockchain, Australia, US, South Korea, Switzerland, China, the
UK, Japan, Singapore, Hong Kong, and Canada pay much more attention to regulate
Blockchain to avoid fraud and other illegal activities that hurt the interests of consumers and
the market (Till et al., 2017). Regulatory uncertainty will have many consequences.
Interviewee A said, “The technical challenge of Blockchain is that no matter how perfect the
Blockchain technology is, it cannot guarantee the authenticity of offline data. The data in
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question will be permanently recorded on the Blockchain if there is a problem with the data
source. Since Blockchain is decentralized, without the supervision of laws and personnel, and
it is difficult to change records on the chain, all of these will cause some problems.” Some
governments take cryptocurrencies as an illegal coin in their countries. The most popular
Bitcoin is only unrestricted in about 110 countries (Price, 2018), as shown in Fig. 4 .

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The reason for this phenomenon is that the asset class is so new that
governments and banks have not adopted the corresponding policy
for them. In cases of fraud, bankruptcy and other failures, the
company does not know the laws and regulations. This is particularly
problematic for companies operating in multiple jurisdictions
(Lewis et al., 2017). Therefore, some risks exist as the taxation status
and trading rules of bitcoin could change overnight.

On the other hand, a complete lack of regulation leads to manipulation

by some small group of crypto owners. Nguyen (2016) asserted the
lack of legal and regulation on Bitcoin and cryptocurrency hindered
the full application of Blockchain. H says, “We are supposed to pay
attention to the legitimacy of Blockchain. Although there are no specific
regulations on Blockchain until now, relevant laws might be introduced
once some new products of Blockchain appear. The award method is
one of the intrinsic properties of Blockchain, so how to define the nature
of these rewards, whether these conducts violate the law, all of these are
needed to be discussed.”

2.5.3. Cybercrime

Public Blockchains promote competition, innovation and productivity,

but they also pose challenges to regulation of money laundering,
terrorist financing and tax avoidance since they do not require
participants to authenticate. (Staples et al., 2017). According
to Price (2018), Cybercriminals, also called computer-oriented crimes,
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conduct illegal activities with the network, causing harmful
consequences for victims. Cryptocurrency is the payment method of
criminals. Lewis et al. (2017) state that Blockchain is applied to Anti-
Money Laundering (AML) and Know Your Customer (KYC)
requirements for financial applications, for transactions on a public,
Blockchain is open and pseudonymous to all, while private systems
have limitations to participants. Every object can be used for good or
evil, and it merely depends on who is using it.

3. Blockchain's development in the financial sector

Drescher (2017) believes that the openness of Blockchain and the

absence of any form of central control are the basis for its operation
but may also limit its adoption. Andolfatto (2018) asserts that the
most important non-technical limitation of Blockchain is the lack of
legal recognition and user recognition. Nevertheless, Blockchain (non-
cooperative consensus) has a comparative advantage in supporting
decentralized autonomous organizations (DAOs). As Carolyn Wilkins
points out, Senior Deputy Governor of the Bank of Canada, “It's hard
not to be fascinated by something so transformative. Blockchain
technology is being used in ways that have implications for central
banking that span all the functions that we have.”

Although the development of this emerging technology is still

immature and faces many challenges and limitations, large
international banks and other financial giants have rushed to lay out
the field and invest resources in technology development and
experiment. Based on Interviewee A," finance is the natural
application scenario of the Blockchain, and cryptocurrencies are also by
far one of its most successful applications, such as bitcoin. The volatility
of bitcoin's price has been widely criticized, but its value cannot be
denied.”

However, technology needs time and talents to explore its possibility.

McAfee1 (2018) concludes that the government should deliver
relevant Blockchain knowledge to the public and companies, who will
benefit from modern Blockchain technology.
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Many research papers and projects on the Blockchain are focusing on
bitcoin. However, bitcoin is only a small part of Blockchain, which can
be applied to many fields. Blockchain can be blend with other
technologies to create more significant impacts. According to
Interviewee B, she said," The Blockchain is decentralized, while the
bank is a centralized system. If the underlying technology of the
Blockchain can be used to make a centralized system, I think the
Blockchain technology can be used in the banking industry.”

For example, Blockchain can blend with big data, since transactions on
Blockchain can be used for big data analysis. Moreover, users can
predict the potential development of trading activities. The only
exception is that the improvement of Blockchain technology can
create many new opportunities.

3.2. Influences of Blockchain on the financial industry

With the rise of Internet finance, the forms of Yu 'ebao, P2P and third-
party payment platforms have accelerated the process of financial
disintermediation. This asset-light and service-heavy model has
severely impacted the traditional financial business of Commercial
Banks, and the reform of the traditional banking industry is imminent.
Affected by user demand and market competitiveness, traditional
Banks have begun to layout Internet finance, but the effect is not ideal.
It is also driving traditional banks to seek new technologies and ways
to speed up the Internet. Blockchain might fundamentally change the
existing finance and the FinTech industry due to the innovation in
storing and transmitting data
(Mu, 2016). Cocco et al. (2017) estimated that Blockchain has the
potential to optimize global financial infrastructure or transfer assets
more effectively than the existing financial system. Research on the
impacts of Blockchain has shown that it can minimize costs and bring
changes to the financial field in a long time (Nguyen, 2016).

Under the prevalence of Blockchain, commercial banks actively

develop and apply Blockchain technology to improve the current
centralized banking system. The financial organizations cut out the
middleman by utilizing Blockchain's security, immutability,
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transparency of the Blockchain (Underwood, 2016). On the other
hand, Hassani et al. (2018) state that Blockchain can bring
opportunities as well as threats to the banking industry. Banks’
attitude to Blockchain is contradictory, and the main reason is the
banks play the role of the middleman and get rewards for the trust
role for a long time, while the Blockchain is the technology to cut the
central role. Hence, what is the real power to attract banks to explore
the new technology?

3.2.1. Real motivation for banks

Banks are the backbone of the financial system. However, based on

Shenzhen Institute (2016)2 , banks are outdated institutions and no
longer focus on customer loyalty. Few would agree that the current
banking system is modern or could be considered an "honest
institution", due to recent scandals that have impacted giants such as
Goldman Sachs and Deutsche Bank.

According to Heires (2016), major corporations have begun to explore

Blockchain technology in the past years. Bank of America has drafted
35 patents related to Blockchain. Barclays, Citigroup, Goldman Sachs
and UBS have formed the R3 CEV consortium to explore the
Blockchain's potential to reduce costs. The NASDAQ stock exchange
and Visa-backed startup called chain have launched Linq, which is
based on Blockchain technology.

Blockchain technology has changed the business model and technical

characteristics of traditional banks. The real motivations, for
international financial giants and local commercial banks, to apply
Blockchain are as follows:

First, it reduces costs and value transfers. Commercial banks often

need to invest a lot of money in a centralized database, since terminal
maintenance and purchase costs are high. On the other hand, many
bookkeeping and settlement work add to the labor costs and human
operation risk. Blockchain technology can solve these problems, since
the use of a decentralized ledger and Blockchain's automation can
build a model with low costs and transparency, without spending
(Nguyen, 2016).
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Second, it can control risks more effectively. Commercial banks
emphasize the monitoring and tracking of loan use, but the actual
operation is not so reliable and effective. Additionally, global
regulation of capital circulation can make it more challenging. The
multi-centered feature of Blockchain technology treats each user as a
node in the Blockchain, enabling direct peer-to-peer transactions
between borrowers and lenders, eliminating the need for credit
guarantees by banks as intermediaries. The credit risk, brought by
information asymmetry, is considerably reduced and the efficiency of
fund management is improved.

Finally, it seeks innovative ways to profit. In the financial sector, more

and more industry giants are investing in Blockchain technology
startups or working with startups, including banks, as well as
investment institutions. In this fiercely competitive environment,
banks need to seek innovative profit models to develop financial
products and open markets.

Blockchain's innovation and transformation of the traditional financial

business of commercial banks are reflected in all aspects. From bank
business to transaction participants, including those involved in the
optimization of various processes in financial services. Blockchain
technology may systematically solve the whole business chain for
banks. As shown in Fig. 3, details are as follows. First, Blockchain
technology is applied to different lines of business in banks, from
payment settlement to bills and supply chain finance. The aim is to
understand customers and potential anti-money laundering risk
management areas better. Second, Blockchain technology will change
the financial business model of all parties involved in the transaction
and improve business efficiency. For banks, the application of smart
contracts can save labor review and billing costs, a lot of manual work
and knowledge-based work will be automated, and talents should
fully utilize their cognitive skills. Besides, the Blockchain can address
the inefficiencies, high costs, fraud and operational risks of various
processes in financial services.

Therefore, the multi-centered Blockchain, public autonomy, and non-

tamperable characteristics have fundamentally changed the
centralized banking system business model, optimized the bank back-
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office and infrastructure, improved service efficiency and user
experience, and provides a transformation opportunity for the bank
from traditional financial business to the internet finance business.

3.2.2. Blockchain strengthens risk management

One area that has made great strides in fighting Anti-Money

Laundering (AML) is the use of Blockchain technology to effectively
identify suspicious transactions by tracking customer transactions
and activities in real-time (Lai, 2018). AML refers to activities aimed at
preventing crimes such as drug-related crimes, terrorist crimes,
smuggling crimes, corruption and bribery crimes, crimes against the
order of financial management. Nevertheless, the ways the laundering
of money is organized are diversified, and the process is complicated,
as the internationalization of circulation increases the difficulty of
tracing the whereabouts of funds. Once money laundering occurs, it
will hugely harm the safety of the international financial system.

Providing relevant and useful services for customers can be expensive.

The reason is further explained by the fact that the customers must
take more time to process the documents and information. H says, “It
is not merely one or two characteristics of Blockchain that render this
technology creative and attract individuals' attention. The integration
of property of Blockchain, such as decentralization, anonymity,
immutability, makes this new technology valuable). Know Your
Customer (KYC) needs a company to verify the identity of its clients
and predict potential risks of illegal intentions for the business
relationship.

Blockchain technology is used to optimize the financial institutions'

AML and KYC processes, which are also crucial for Industry 4.0
development (Dhanabalan, and Sathish, 2018; Mashelkar, 2018). First,
the ins and outs of each fund of financial transactions can be traced
back to prevent supervision through the non-tamperable time stamp
of distributed ledgers and the characteristics of public autonomy of
the whole network. Vulnerabilities, laws and regulations are not
perfect, resulting in the flow of illegal. Second, the entire block
network data is stored on each node to achieve information shared
and reduce the duplication of audit work. Third, the credit history and
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transaction information of all participants are stored in the general
ledger of the Blockchain and shared by each node. When the KFC
process is passed, all the new customers' data can be quickly located,
saving time and improving efficiency. Blockchain technology can save
personnel and technology costs for AML and KYC.

Go to:

4. Data and methods

4.1. Data collection and management

In this study, the method of the interview was employed. The

interview was the most appropriate research method since a large
volume of information can be obtained to understand the current
status in the Blockchain technical development, marketing and
business adoption. Apart from the descriptive information of
interviewees, open-ended questions were largely adopted to suit each
interviewee's case. The reason this study used this method was that
open-ended questions could provide more opportunities and rooms of
development for interviewees. Moreover, primary information related
to the Blockchain can be obtained from the open-ended questions and
it is more direct and valuable than other information.

In order to obtain the primary information from the experts and

professionals related to Blockchain, 100 target interviewees were
invited and 16 of them accepted the invitation and were willing to
provide their knowledge and insights. To protect their privacy, their
identities remained confidential. These interviewees are suitable for
this research for several reasons. First, they are experts in the area of
the Blockchain and the information they provide is a professional and
true reflection of current industry status. Second, the background of
the interviewees is diverse. Some interviewees come from research
institutions and some of them come from the Blockchain industry.
Their research or experiences allow this study to collect primary data
from diverse backgrounds and learn about the Blockchain challenges
across different sectors. Finally, the interviewees live or work in
different countries, and their information may allow this study to
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better understand the Blockchain's world and its impacts on Industry
4.0.

After data collection, this research adopted open coding for interview
information, since each institute or business entity may have different
focuses. In addition, two of the authors coded the interview
transcripts separately to ensure greater reliability. Before concluding
the summary of our research, coding results were carefully compared
by independent researchers to ensure data consistency.

Respondents’ characteristics are presented in Table 1 . It can be seen

that the interviewees were aged between 25 and 48 years old, with an
average age of about 32 years old and an average of 3.9 years of
finance or R&D-related experience. The respondents live and work in
different countries (UK, USA, China, France, Australia, New Zealand,
India, Korea and Singapore) with a wide range of expertise and
demographics.

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According to R1, a sense of superiority could be installed in her team
and the organization, since she feels that she owns certain new
knowledge that others do not know. An IT-driven environment gives
her the advantage over others, since her supervisor can assign her a
higher level of responsibilities. Her sense of superiority can also earn
respect from her teammates. Hence, effective evaluations can be the
reason for driving her towards knowledge-hiding. This also reinforces
views from Kumar Jha and Varkkey (2018). They argue that one major
reason for knowledge-hiding is due to the sense of superiority that
immediate respect from colleagues and supervisors can be earned and
positive acknowledgment from supervisors may have a better chance
for career development. The difference between R1 and R2
interviewees is that R2 feels his advanced knowledge can put him in a
better position than others. He is not going to show off but feels a
more sense of security since IT is a very competitive sector. Thus, this
case is more towards "Beneficial at the individual levels”. One way or
the other, it is easily transferrable depending on the individual's
motivation and actual intention of knowing and hiding new
knowledge in Blockchain. On the other hand, R10 believes that if he
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knows something, others do not know yet, giving him a sense of
satisfaction. This is similar to the feeling of being the first person
achieving a new task or something challenging. Therefore, it is
classified under Behavioral evaluations. On the negative aspect of
Behavioral evaluation, R9 thinks it is a waste of time since senior
management does not accept new concepts. As a result, he keeps new
knowledge to himself.

Knowledge-hiding in Blockchain can be due to “Beneficial at the

individual levels" in Table 2. R2, R8 and R16 do not use the advanced
knowledge to show off or impress their supervisors; rather, they take
a more defensive approach. They fully understand that Blockchain
adoption is a very competitive market and that they must be highly
skilled and competent in both technology and business areas.
Therefore, they need to have deep knowledge, perform in
implementation and experiments, and quickly adapt their work due to
market changes. They feel that getting that new knowledge can secure
their current position. On the other hand, R10 does this intentionally
to stimulate new employees to think of solutions and ways to
overcome problems rather than relying on "spoon-fed" answers and
recommendations. Indeed, Blockchain is an area that can evolve fast,
and employees may have to equip the new skills and knowledge that
are often attending lecture-based training may not achieve long-term
benefits. Experiential learning or problem-based learning can result in
better long-term benefits.

R7, R14 and R15 have identified risks of Blockchain adoption in their
organizations. They come from the angel that others can steal their
ideas directly or in a longer process. Hence, they have been careful in
their work and do not reveal much about what they do, until it is
confirmed that they can understand that there will be less or no
impact on their work. In this case, before the wide adoption of
Blockchain in banks and financial services, this ethical concern of
knowledge-hiding should be overcome or improved clearly.
Recommendations from these interviewees were taken to ensure that
Blockchain can be used more widely and more conveniently.

Go to:

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6. Recommendations and discussions

Each interviewee was asked for recommendations in two areas

answering the following questions (Table 2): 1) How to improve
current situations in knowledge-hiding for Blockchain adoption; 2)
How Blockchain can be better used, accessed and adopted by financial
services and other organizations. Their comments were carefully
recorded, compared and then divided into three categories as follows.

6.1. How to improve current situations in knowledge-hiding

for Blockchain adoption

TPB can be used effectively for this case. In fact, some organizations
are aware of this issue and have implemented some actions classified
under subjective norms. As an example, within R3’s organization, the
staff needs to share their knowledge with others during the
presentation. However, depending on the potential perception of risk,
managers could decide to talk privately with the person in charge,
such as in R5’s structure. Both R3 and R5 are under descriptive norms
since their organization can talk to them about knowledge-hiding for
Blockchain openly or privately.

In R4’s case, due to the highly skilled area criteria, he was unable to
grasp the manager's ability to intervene fully. Then, he decided to
adopt a soft and open approach and surprisingly, some employees
started to share some “secrets” or tips on improving the Blockchain
implementation. R5’s organization took a more authoritarian
approach to information sharing but did not announce when the
change will take place. R13 and R1 face a similar situation where the
organization cannot accept knowledge-hiding. All employees in charge
of Blockchain topics have been asked to present their work. Indeed,
R13’s organization makes it a policy to demonstrate their knowledge
and work done for Blockchain regularly. R16’s organization relies
more on the manager to extract knowledge from his team and spread
it with others within the company, in changing potentially the internal
culture. On the other hand, R6 and R10′s organizations will not change
their policies regarding knowledge-hiding for the time being due to
different reasons. Their motivation for doing so is due to the
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 insecurity of jobs, especially since the Year 2020 due to COVID-19. Job
losses and discontinuation of contracts are common as a result of the
scale-down of business activities and travel. Financial services with
Blockchain development have been affected due to the economic
downturn.

Ten out of sixteen interviewees feel that a certain extent of knowledge

sharing can help the development and adoption of Blockchain.
However, it should be done in fair and independent ways without
forcing employees to devote more than necessary. A more structured,
well-balanced and comprehensive way can be developed to achieve
better benefits for the organizations, employees and client
organizations.

6.2. How Blockchain can be better used, accessed and adopted

by financial services and other organizations

The critical success factors identified for the adoption of Blockchain

solutions within financial services and research departments are
highlighted below:

 Enough capitals and good financial management – All the

interviewees suggested that companies deciding to implement
Blockchain must have enough capital as its implementation is costly
and not all organizations can afford this in the long-term.
 Align the organization's activities with Blockchain initiatives –
The main activities of the financial department should be aligned with
the decision to use Blockchain's solutions (research or real services or
both). Indeed, if the companies do not specialize in banking
investment, they should not take the risk to address this new market.
 Sufficient energy and electrical supplies – Blockchain will require a
large consumption of electricity and abundant energy supplies can
impose a requirement for using or adopting Blockchain.
 Reliable high computational power – similarly, Blockchain will
require high-end computers nearly at the supercomputers' levels in
order to run thousands or millions of calculations per second. Reliable
high computational power with suitable cooling, abundant energy

P a g e 26 | 33
 supplies, low risk to natural disasters and accidents (e.g., fire), can
make all transactions safe and secure.
 Intelligent algorithms with mathematical complexity – Blockchain
requires the support of complex mathematics running behind high-
end computational power. This also needs intelligent algorithms to
run behind the scene reliably every second.
 Well-trained teams – In this paper, this factor has been discussed in-
depth, particularly the issue and fights against the knowledge-hiding.
To make Blockchain implementations and services performing well,
dedicated teams with different expertise are required.
 Security and privacy – Ensuring a high-level of security and privacy
has become very important. High-end encryption algorithms, personal
identifier removal, a combination of passwords and biometric
authentication, plus specialized access control, can all together make
Blockchain a safer environment for work.
 Analytics and user interfaces – Analytics functions can allow their
clients to execute simple Blockchain requests behind the scenes. The
operations are easy to do. Results can be returned within minutes. In
this way, their clients feel it is accessible and convenient.
 Focus on product development, quality assurance, reputation
and community building –A lot of financial services focus on the
market share or their perceived value by the market. Interviewees say
that the first step in the implementation of Blockchain, is to propose a
high-quality product, then build up their reputation and, eventually,
their own community. This is a step-by-step process. They said some
firms or banks failed due to inferior quality products. Their clients like
Blockchain's solution, but still feel its adoption as “risky”.

6.3. Proposition

In this section, we sum up the agenda from the overview of Blockchain

between Sections 1 and 6, and the challenges and recommendation
raised by our expert interviewees, and present them in the form of
proposition. These propositions support our contributions based on
current industrial research.

Proposition 1

P a g e 27 | 33
Blockchain can bring disruptive changes to banks and financial services,
with both positive and negative impacts. Banks and organizations that
adopt Blockchain should manage technology, change of culture and
employees working on Blockchain.

Our study has identified that banks and organizations that adopt
Blockchain have positive aims and objectives. They have been keen to
develop new products and services, and aim to enter the market as an
early pioneer, with the common plan to get to sufficient market share.
Blockchain can offer the dynamic changes to the organization, since it
can attract more attention and investment opportunities from the
shareholders, and financial services are more willing to scale up the
level of services and product development. New teams (including
marketing, research and IT) have been formed with more clients and
business opportunities available. On the other hand, the impacts
offered by Blockchain adoption can also be destructive as follows.
First, it has changed the ways that employees work and communicate
within the organization. Second, employees are required to learn new
skills and knowledge, since the changes in Blockchain adoption can be
rapid. It is also difficult to get professional help, since other "experts"
are still learning new knowledge themselves. Third, not all the
organizations have been entirely ready for the Blockchain adoption.
Knowledge hiding and its related issues have been a result of this
challenge.

Proposition 2

Knowledge hiding can be a common issue in organizations that adopt

Blockchain. This can be due to affective, behavioral and cognitive
evaluations of their behaviors. Acknowledging knowledge-hiding is
important since organizations can develop processes and better
strategies to manage, monitor, evaluate and fair knowledge-hiding
more equally.

The TPB theory can be used to explain the occurrence of knowledge-

hiding in the context of affective, behavioral and cognitive evaluations.
Knowledge-hiding can happen for feeling superior in the team, or
feeling more secure about jobs, or feeling the need to do so to prevent

P a g e 28 | 33
other employees from overtaking their positions. Organizations that
adopt Blockchain should take knowledge-hiding proactively, openly
and more honestly. Managers can act as excellent communicators,
since encouraging their employees for better motivation and the long-
term benefits for "incremental" knowledge-sharing can be more
productive. It is also fine for organizations to develop policies in terms
of sharing and presenting their findings in advanced skills and
knowledge, and make it a rewarding culture rather than a culture that
may penalize those with advanced skills. Organizations should also
invest in training employees to be equipped with advanced skills in
managing destructive technology.

Proposition 3

A comprehensive Blockchain adoption framework should be developed

to manage, evaluate and integrate recommendations from expert
interviewees fully.

Section 9.2 presents recommendations based on expert interviewees

and their years of experience in adapting, using and investigating
Blockchain. Their valuable recommendations are insightful to provide
an effective workaround to overcome knowledge-hiding but improve
on accessibility, adoption and efficient use of Blockchain. In summary,
three main factors include technological, organizational and people
(TOP), with impacts on the current entrepreneurial finance landscape.
Technological factors include high-end computational powers,
sufficient energy supplies, smart algorithms, analytics, security and
privacy. Organizational factors include good financial management
and align the organization's activities. People factors include the well-
trained teams and its management to overcome impacts due to
knowledge hiding, but develop the organization into a culture of
incremental knowledge-sharing and mutual collaboration. The factor
“focus on product development, quality assurance, reputation and
community building" is the result of effectively exercising these three
factors. First, the product should have excellent quality with a
vigorous quality process. Second, the organization can develop a
culture to use incremental knowledge sharing to gain their positions
in the market. When the teams can develop better collaboration and
develop good client relationships, a strong community can eventually
P a g e 29 | 33
be established. This will require a TOP Blockchain adoption
framework, as our next phase of research, to recommend how the
organization can develop and manage Blockchain adoption. Despite
the TOE framework has been popular, environmental factors are less
suitable in the case of Blockchain adoption.

Proposition 4

Knowledge-hiding can happen before the next wave of a downturn

due to economic uncertainties.

The downturn can happen due to various reasons, which may include
the scale down of business activities, global recession, and large-scale
crises, which is not desirable for the development of Fintech and
Industry 4.0. In the Year 2020, the COVID-19 has become a pandemic.
It is not only a public health crisis but also an economic downturn.
Due to the lockdown of cities, closure of some businesses and scale
down of business activities, loss of jobs and discontinuation of
contracts have become common in financial services. Therefore,
knowledge-hiding can happen due to due to economic uncertainties.
Individuals are doing this to prevent others from getting job
opportunities. Businesses are doing knowledge-hiding to avoid other
businesses knowing how to attract customers and maintaining their
competitiveness. Therefore, swift actions for remedies and
stimulations of economic packages should be on offer while tackling
the public health crisis.

6.4. The interview sample size

The result of this research is limited by the sample size. Due to the
limited resources, the authors were just able to invite 100 target
interviewees and only 16 of them accepted the invitation. The small
sample size may result in a biased result or that the comprehensive
understanding of the status of Blockchain adoption cannot be
obtained. However, it was difficult to get more interviewees, since
many of their employers did not allow them to enclose further
information. Addtionally, it was common in the financial industry, not
to enclose information that could have direct and indirect impacts on
P a g e 30 | 33
their businesses. Therefore, our future work should target more
related interviewees with diverse backgrounds and also widen the
business sectors, such as IT, Higher Education and Healthcare. We
should also get difference compliance and legal requirements, such as
General Data Protection Regulations (GDPR) if interviewing
Blockchain practitioners and researcher based in European Union.

Go to:

7. Conclusions and future work

This paper highlights the fact that the financial industry is on the edge
of a new financial era using a new destructive system based on
Blockchain. The previous products and services proposed by the
finance sector were considered as costly and inefficient. Consequently,
a massive transformation was required. Tang (2018) pointed out that
Blockchain could represent credit reconstruction, a cross-time
consensus mechanism that enabled people to trust each other without
social relations and credit accumulation. Blockchain technology had
the power to improve the efficiency and security of financial markets,
although there was much work need to solve the underlying problems
(Lewis et al., 2017). Therefore, the current status and industrial
practices of Blockchain adoption in financial services were discussed
in some details. Challenges faced by different countries had little
differences and recommendations could be addressed to minimize
such impacts.

While the development of Blockchain was not mature yet, we should

improve our technology and system supervision to the Blockchain.
The government and relevant departments should formulate policies
to enable the public to benefit from Blockchain and strictly prevent
the illegal use of Blockchain to engage in money laundering, terrorist
financing and even capital control activities (Nguyen, 2016).
Undoubtedly, Blockchain could be a very competitive and
“imaginative” technology that might change the financial and
commercial infrastructure of our society in the future. Financial
services should take a long-term view and start to explore the
implementation of Blockchain technology to improve their business,
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otherwise due to the competition, and they could be eliminated
eventually. By using interviews as the main research method, it could
allow us to identify the most serious problem, knowledge-hiding,
which could prevent further development and success of Blockchain
adoption. Thus, knowledge-hiding reasoning should be fully
understood with ways to minimize its impacts, before resolving other
technical challenges such as energy, scalability, security, as well as
ethical challenges related to legal regulations and cybercrimes.

However, interviewees still provided valuable insights into the

current status of Blockchain adoption. Knowledge-hiding was a rising
issue. One of the contributions of this research is that, based on
reinforcing the previous research on knowledge hiding, discovered
some unique reasons for hiding information in the financial industry
using Blockchain. Jha and Varkkey (2018) believed that knowledge-
hiding might bring one sense of superiority and help him or her to
earn respect from others or achieve a better career
development. Anand and Hassan (2019) considered that the reason
for knowledge hiding is due to that employees are afraid of losing
their current power or position, or their work may be impacted. This
research agreed with their views. However, different from them, two
other reasons were provided by the interviewees. One reason is that
employees think it is a waste of time since senior management often
refuse to accept new concepts. The other reason is that some
experienced employees believe that in a fast-growing area of
Blockchain, experiential learning, or problem-based learning can
result in better long-term benefits than lecture-based training.
Therefore, it is important for new employees to think of solutions and
ways to overcome problems on their own.

For the technical development and advancement in business

opportunities, knowledge sharing would be required, but it should be
structured, using a step-by-step process, and focused on product
development, ensuring a high quality, a good reputation and building
a community. Market share was only a reflection of what the company
and its products’ standing of their past and current performance. It
did not guarantee that their products or services or market could
stand for long. Their main challenges are to foresee what could
happen, whether positive or negative perspectives and to
P a g e 32 | 33
demonstrate their abilities to adapt their organization to the change of
paradigm of the market. All these help us to develop three
propositions based on our research and recommendations from our
expert interviewees. Recommendations and lessons learned were
useful for organizations adopting Blockchain and new ways to manage
knowledge sharing and improvement in efficiency better.

Other researchers should investigate if the knowledge-hiding is also

an issue within other markets, not only financial services, which tend
to disclose their business successes to avoid competitors gaining
advantages. Furthermore, a framework can be developed to help and
allow knowledge sharing in a more structured and balanced way, so
that certain critical knowledge can be hidden for defensive
approaches like the “Beneficial at the individual levels”. Additionally,
other knowledge can be used in order to explain to a general audience
the benefits of Blockchain adoption and minimize the perceived risks
of Blockchain. Our future work will focus on the development of such
a Blockchain adoption framework, focusing on technological,
organizational and people (TOP) factors dealing with successful
Blockchain adoption and allowing Blockchain to serve different types
of business activities and services well enough. We will also
investigate how to maximize Blockchain adoption in the post-COVID-
19 period and recommend strategies and best practices for businesses
and individuals.

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